The 2017 tax reform act contains a special economic development tool for re-investment in “Opportunity Zones”.
Taxpayers who reinvest gains from other investments into Opportunity Funds that invest in Businesses or Real Estate Developments located within these designated zones (more on this in a minute) can defer tax for up to 9 years. The tax impact of the prior transaction can also be improved for 7 year holds (15% discount off cap gain rates) and potential exemption for 10 year holds.
Full details of the program will be forthcoming in regulations to be issued by the US Treasury. However, the areas that are to be selected by each governor had a 90 day clock that ends on March 22nd unless extended. Each governor is only permitted to designate 25% of the low income census tracts within the State. Attached is a link (http://enterprisekis.maps.arcgis.com/apps/View/index.html?appid=c04116fc2dba4849af21ea5a41b64547&extent=-138.5130,20.0733,-54.1381,52.9465 ) to the nationwide map that will show the current census tracts in AL and elsewhere.
There is some thought that the regulations needed to take advantage of this will not be forthcoming anytime soon and in order to qualify, a reinvestment must happen within 180 days of your sale to qualify. Therefore, some advisors are suggesting holding off on sale of assets until the rules and zones have been promulgated.
Each governor, once they submit a list of the designated census tracts, then gives the US Treasury 30 days for feedback. And, once approved by US Treasury, the Opportunity Zone designations will remain in place for 10 years. So, if not extended, the designations may be final on April 30th. This was credit scored at $1.6B over 10 years but many believe it will provide a larger opportunity to taxpayers. The governors are being challenged to designate areas that will not subsidize projects that were already in the pipeline. The Sirote team will be watching this new program as the rules and areas are designated. For more information, please contact Brad Sklar.